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Bidding Zone Review: TSOs investigate alternative bidding zone configurations

In the context of the European Electricity Regulation, part of the Clean Energy Package, the European Transmission System Operators (TSOs) for electricity have to conduct a common study into alternative bidding zone configurations, the so-called Bidding Zone Review.

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5 Minutes

Last updated

9/6/2022

Market

Bidding zones are areas in Europe in which a single (wholesale) electricity market price applies. On the 08th of August, the European regulatory authority ACER has taken a decision that for France, Germany, Italy, the Netherlands and Sweden, alternative bidding zone configurations have to be investigated in the Bidding Zone Review. Germany is clearly the focus of the Bidding Zone Review: Here, four different alternative configurations must be investigated, while for each of the other countries mentioned only one alternative configuration will be studied.

Given the high level of congestions within Germany and the Netherlands, TenneT supports ACER’s decision to investigate the effects of bidding zone splits for Germany and the Netherlands. TenneT will actively contribute to delivering objective and representative results such that in the end involved Member States can make a well-informed decision on the future bidding zone configuration for Europe.

Why investigate alternative bidding zone configurations?

​The purpose of the Bidding Zone Review is to investigate whether alternative bidding zone configurations increase the economic efficiency and cross-zonal trade opportunities, without jeopardising the operational security of the electricity grid. Regulation (EU) 2019/943 on the internal market for electricity ("EU Electricity Regulation") prescribes that bidding zone borders should be based on structural congestions in the transmission grid.

When drafting the methodology for the Bidding Zone Review in 2019, TSOs also had to propose alternative configurations to be studied for the Review. At that time, TenneT together with the German TSOs, suggested to study alternative configurations for the Netherlands and Germany, including a split of the Dutch bidding zone in three zones and three different splits of the Germany bidding zone. However, as the NRAs could not agree to approve the proposal, the decision on the methodology, assumptions, and alternative bidding zone configurations to be considered in the Review process was transferred to ACER on 13th July 2020.

ACER concluded that they did not yet have sufficient information to decide on the alternative configurations which should be evaluated. As a way forward, in November 2020 ACER tasked the TSOs to calculate so-called Locational Marginal Prices (LMPs) – essentially a nodal price per substation – for the target year 2025. Last March, the TSOs achieved a significant milestone with the completion of these LMP calculations for the whole of continental Europe, and submitted these results to ACER. The results have also been made publicly available on ENTSO-E’s website.

Based on these results, ACER has now adopted a decision on which alternative bidding zones have to be investigated in the Bidding Zone Review. With this decision, the Bidding Zone Review can now commence.

The alternative bidding zone configuration to be investigated for The Netherlands

​The Netherlands is currently one single bidding zone. ACER has decided that for the Netherlands, a split into two separate bidding zones has to be investigated. The bidding zone split roughly follows the border between the province of Overijssel and the province of Gelderland, where all network elements to the 110 / 220 kV would end up in the north-eastern Bidding Zone and all 150 kV network elements would end up in the south-western Bidding Zone.

De te bestuderen alternatieve biedzone-indeling voor Nederland

Figure 1: The to-be-studied alternative bidding zone configuration for the Netherlands

The alternative bidding zone configurations put forward for Germany

​Germany and Luxembourg together currently form a single bidding zone as well. For Germany, four individual alternative bidding zone configurations have to be investigated: two different splits in two bidding zones, one split in three bidding zones, and one split in four bidding zones.

De vier te bestuderen alternatieve biedzone-indelingen voor Duitsland

Figure 2: The to-be-studied alternative bidding zone configurations for Germany

The alternative biding zone configurations in figures a) and b) show a North-to-South split. In figure a), the bidding zone delineates slightly further southwest than in figure b). The configuration of figure c) foresees an additional split of the northern biding zone into a western and eastern zone. Figure d) shows a split into four bidding zones, in which the southern bidding zone is further divided and the Eastern bidding Zone further extended to include also Schleswig-Holstein.

Next to the individual configurations, where a split of one bidding zone in isolation will be studied, meaning that all other BZs are simulated with the status quo configuration, two combinations which each comprise two member states will be studied. These combinations will be determined during the process by combining the individual configurations which are estimated to entail the highest individual monetised benefits.

A wide range of indicators will be studied in the Bidding Zone Review

The Bidding Zone Review will include an extensive evaluation of the positive and negative effects of different bidding zone configurations. In total, 22 indicators related to overall market efficiency, network security, stability & robustness of the bidding zones, and effects on the energy transition will have to be assessed. With the output of these 22 indicators, the TSOs will conduct the evaluation process as established by the Bidding Zone Review methodology, in order to finally come up with a joint recommendation for each region on whether to keep the current bidding zone configuration, or amend it.

Stakeholder input is essential for the Bidding Zone Review

Stakeholder expertise is essential for any discussion of a fundamental market design element such as the bidding zone configuration. ENTSO-E and the TSOs strive to involve a wide range of stakeholders from the start of the Bidding Zone Review process, with substantial consultation during the review via public workshops, an inquiry on transition costs and a public consultation. Also, a Bidding Zone Review Consultative Group has been established, where Dutch and German market parties are being represented by European associations, as well as national bodies including Energie-Nederland and BDEW. TenneT encourages interested Dutch and German stakeholders to let their voice be heard via these associations and to make use of the consultation possibilities during the review such that their views on the effects of alternative bidding zone configurations can be taken into account during the Review process.

Bidding Zone reconfigurations are not expected to happen before 2027

On the basis of the results of the study, which is expected to be completed in 2023, TSOs will make a joint recommendation to the governments of the involved member states. The member states will then have six months to decide unanimously whether to maintain or amend the current bidding zone configuration, and when this change should take effect. Given the time required to enable all parties in the energy sector to prepare and adapt their systems to make this possible, it is not expected that a bidding zone reconfiguration would be implemented before 2027.